Internet Finance is a term drawing massive attention from cities to villages across China. By broad definition, internet finance – which includes Peer-to-Peer (P2P) lending and crowd funding – includes any organisation that extends their financial applications to the public over internet or any other IP network. Heated discussion surrounds the question of whether internet finance may replace conventional banking in China, unlike in many countries where it has undergone an evolution alongside conventional banking.

To see the future of this competition, we first need to understand the fundamental differences between them.

Here let us focus on a particular class of internet finance as an example – online lending – which includes two popular models. One is based on e-commerce, in which loans are provided to registered customers such as with Ali finance in China and Amazon in the US. The other model is P2P lending, such Lufax and PP Dai in China, and Kabbage, Lending Club, Prosper Marketplace in the US and European countries. Almost all online lending organisations in China and overseas target small clients. The lending quotas of Ali Finance, for example, range from $8,000 to $160,000 and the minimum investment in Lufax is around $1,500. The average loan amount of Lending Club and Prosper Marketplace, the two largest P2P platforms in US, is around $12,000 and $7,000 respectively.